The archive · Business Models · Marketing decision · 1999–2009
Zappos makes free shipping both ways and 365-day returns the product
Online shoe seller Zappos absorbed shipping and returns to remove every reason not to buy shoes online.
Zappos
What it had to solve
In the early 2000s buying shoes without trying them on was the biggest obstacle for online retail, and Zappos' drop-ship model couldn't control delivery or quality.
How it works
Zappos launched in 1999 selling shoes online at a time when not being able to try shoes on was the category's core objection. Founder Tony Hsieh's answer was not a better shoe catalog but a better promise: free shipping and free returns on every order, a 365-day return policy, and 24/7 customer service by phone.
The service model forced an operational change. Zappos started as a drop-shipper with no inventory, but in 2003 it abandoned that model to buy its own stock and run its own warehouses — the only way to control delivery times and the full customer experience. It even encouraged customers to order multiple sizes and colors and return what didn't fit, because shipping was free in both directions.
The economics looked irrational and were deliberate: in 2008, 37% of purchases were returned, or $379 million worth of goods. Zappos counted the cost as marketing investment, reasoning that a happy customer is the best channel. Gross revenue reached over $1.1 billion by 2009, and Amazon acquired the company the same year for about $1.2 billion. Hsieh described the extreme-service decisions in a 2010 Harvard Business Review first-person account.
Why it lands
- It removed the single biggest reason not to buy shoes online — the risk of an ill-fitting purchase.
- It converted an operating cost (returns, shipping) into the company's main marketing message.
- It forced ownership of fulfillment, turning a commodity reseller into a service brand.
- It made customer service the channel: word of mouth replaced paid acquisition.
What it did
The policy became the pitch: 37% of 2008 purchases were returned ($379M of goods), treated as marketing spend rather than loss. Revenue passed $1.1B by 2009, when Amazon bought the company for about $1.2B.
What you can take
If the buying risk is the barrier, price the risk out of the transaction — a generous return policy can be cheaper than the customer acquisition it replaces.
Since then
Free shipping and generous returns became the default expectation across e-commerce, widely credited to Zappos' example. Zappos kept operating independently under Amazon, and its service-first culture (including unscripted, unlimited-time calls) became a frequently taught business case. The company's current site still advertises free 365-day returns.
Sources
- Zappos: Delivering Happiness, Powered by Service
- How I Did It: Zappos's CEO on Going to Extremes for Customers
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